The #cashforcameron scandal offers easy picking for Labour at the moment, but it won’t last long.

The Tories are already working hard to cast Labour’s union funding arrangements in an even worse light than its own, and a compliant media will ensure that, when the dust settles, it’s a score-draw, unless Miliband changes the game now.

The Tories may have been found out on this occasion, but the political establishment as a whole will have been dragged down further into disrepute. In the end, what started out as bad news for the Tories will be even worse news for Labour, as the Tories create the space for a fuller attack on the Labour-union link.

Miliband and his team should now think strategically, not tactically.

Calling for a public inquiry is tactical response-by-numbers; the public is sick of public inquiries which never seem to change anything.

Instead, Miliband needs to act decisively, and announce that Labour plans to review its own funding processes, in a way which not only meets head-on any concerns over Labour’s policy-making probity but also – and more importantly – seeks to rejuvenate party political activity by devolving party funding to the the lowest possible party unit.

In so doing, Miliband will create clear water between Labour and the other parties on how and why it funds its politics – avoiding the false choice between donations to pary HQ or state funding, both of which are no-nos with the public. At the same time, Miliband has a golden opportunity to develop a genuinely more legitimate and equal relationship between Labour and the unions who fund it will be created.

Assiduous TCF readers will, of course, remember that I’ve been here before, but what I said back in 2010 is now even more relevant to Labour’s fortunes:

[W]e need to think radically, and soon, about how to generate additional membership/union income.

There are, I contend, two main ways in which we can increase revenue through the enhancement of party/movement democracy and a consequent increase in our activist/membership base.

Both are radical but logical steps in power devolution of the type all leadership candidates now say they espouse (though details are scant on how this will be acheived), and both will increase membership/union input substantially if they are implemented properly and in good faith.

First, the financial flows within the party need to be totally reversed.

All membership money and donations, barring a very small top slice for absolutely essential national administrative functions, should be distributed to CLPs (and possibly branch level in time) on a pro-rata basis according to membership numbers.

The CLPs, thus resourced, will then be open to ‘business plans’ from MPs/PPCs and from regional party structures/the NEC etc. which they can approve, ask to see amended, or reject as they see fit. Under your guidance, CLPs should have a mind to ensuring the smart, cost-effective campaigning you advocate. Initially, the task facing CLPs may seem overwhelming, and some central support from the top slice may be necessary.

In time, all parliamentary monies paid to MPs for running their constituency office should have automatic sequestration by CLPs and this should then be subject to the business planning process indicated above. Beyond this, MP salaries might also be taken down the same route (as would councillor allowances), with local decisions made on how much MPs are worth paying (of course, we would expect to see Labour MPs form their own union to negotiate collectively).

This devolution of power over the party’s resources will, in a fairly short space of time, create a major incentive for people to join the party, in the knowledge that they now have a local say over how the party’s resources are spent i.e. on what campaigns. In effect, local party members become Trustees of their own local party, with the MP and councillors (and other staff) acting as employees.

When back in government, Labour should also consider passing legislation which imposes the same ‘bottom-up’ funding model on all political parties with parliamentary representation in respect of all monies paid by government to parties e.g. Short monies. This funding pro-rata to membership, with memberships of the various parties then having real financial clout, will create a virtuous circle of local input-increased membership of parties-increased local input.

Second, and closely related to the first radical step, the NEC should commence work with trade unions to encourage them to disaffiliate from Labour nationally and to re-affiliate to local parties [and to take to conference a motion making this a Labour party rule].

Funding should be allocated to these local parties on the basis of satisfactory ‘business plans’ (an extension on the way in which unions already fund specific campaigns with MPs).

Again, this will enhance local input into decision making and increase party/union membership in time, creating scope for additional revenue into the party.

Clearly there will be a need to agree a transition plan which caters for the fulfilment of exisitong obligations to creditors and reassures them that this move towards localised funding arrangements will provide better guarantees of debt repayment because it creates both better revenue and better understanding within the membership of the party’s current financial obligations, leading to an enhanced willingness to contribute, fundraise and recruit.

Membership and union involvement needs to increase dramatically. This is the best way towards long term financial stability and further growth. Empowering the existing membership and union supporters is the way to do this.

These proposals are set out more fully here, and (in respect of legislation for all parties) here.